I’m a financial analyst and professional investor from Santiago, Chile. I’m the owner of Global Trader, a brokerage and trading company for Chilean investors. For years I have studied the techniques of master investors and traders to create my own style. Asides from finance, I’m an avid... More

Today the market gaps fueled by higher than expected growth in Chinese GDP. Emerging markets, commodities and Brazil lead the rally today on these news.

Also today we got a positive Spanish bond auction.

The market has completely ignored the S&P downgrades on France, Austria and the ESFS bailout fund.

I think is a positive that the market stops paying attention to this rating agencies which have shown during the last 5 years or so to be most of the time wrong and late in ther risk classifications.

The market has given up a big part of its gap up gains but the leading stocks and NASDAQ have held firm which shows good overall strength.

The S&P 500 is starting to get overbought but looks like it could hit its previous high at 1350 after a consolidation or pullback.

As you can see from the charts the market is getting overbought and it will be hard for it to push higher unless we get a very positive catalyst.

Since we are in earnings season, better than expected earnings could propel it higher.

If not, we are going to probably consolidate here or pullback for a while.

Also, intermediate term sentiment, as measured by sentimentrader.com is at a very bullish level which normally causes a decline or at least a period of consolidation.

Another thing to watch is the EUR/USD. We got a failed rally attempt last week when it recovered its lower trendline of its downward channel. The bulls got hammered on the S&P downgrade news.

Today it is once again trying to recover its lower trendline. A close over 1.2760 should trigger a short covering rally.

As you can see in the chart the Commitment of Traders shows that speculators are historically short while commercial players are extremely long. There is a lot of "fuel" to generate a powerful short covering rally which should be bullish for the markets.

Last Friday the S&P 500 finally took out resistance at 1260 and closed over its 200 day moving average.

The Dow Jones Industrials broke out from a reverse head and shoulders pattern and closed over resistance at 12.250.

The market looks more bullish, with a couple of higher lows since the October bottom and is now offering some setups in leading stocks that want to breakout higher.

We still have some positive seasonality left which is also bullish.

However, we still need a high volume-conviction breakout in the S&P 500 and other indices to confirm that a new uptrend has begun. We have been here before in October, November and in early December only to fail and pullback from these levels.

Also most of the world's markets are still trending down or sideways.

The Market Monitor has 30 Components (ETF´s) that in my view represent the world's economy from a "bullish" point of view. The more of them going up, the stronger the world economy and the stronger the trend and breadth of the markets.

Of all the assets that compose the market monitor only 3 of them (10%) are trading over their 200 day moving average and only barely so (DIA, SPY, USO).

The rest of the markets are trading, in most cases, below their 200-150-50 day moving averages so a new global market uptrend is still far from being confirmed and we will probably roll down lower again if things in Europe get nasty.

If a new "bull market" is starting, the beginning stages will be choppy as most world indexes have a lot of resistance to challenge and stiff sellers will surely appear at these levels.

Gven the current conditions I think trading break outs will still remain challenging (most have failed since July or so) and buying pullbacks on quality stocks will be the best trade.

From a Macro point of view, the US economy seems to be improving after a couple of bad quarters but the European situation still far from being "fixed" so expect headline risk to remain high and markets still sensitive to the developments of the old continent.

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